‘Circularity’ is a flashing warning for the AI boom
The buzzword “circularity” has gained prominence this year as a note of caution about the companies building out massively expensive infrastructure needed to support mind-bending artificial intelligence applications. Big Tech leaders — including OpenAI, Nvidia, Google, Oracle, Meta and others — are investing billions in each other and other companies, propping up one another’s finances, potentially beyond where logical and prudent spending would otherwise have taken them.
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The money flows in a circular fashion — from one company to another and then back again, ultimately, to where it started — not necessarily creating value along the way. The termis meant to warn investors to temper their AI exuberance by explaining one of its chief risks, namely that feverish periods of investment drive booms that lead to busts. If the pumping up isn’t warranted, the puncture is all the more painful.
Wall Street loves its catchphrases, the better to simplify esoteric, tedious or just plain risible concepts. This year’s “TACO” trade, for instance, assured investors that “Trump Always Chickens Out,” making it okay to bet on stocks that otherwise might decline due to ill-advised tariffs. “SPACs,” flimsy investment vehicles for bringing shares of dodgy companies to public markets, is a whole lot more fun to write and say than special purpose acquisition companies.
What’s amusing about “circularity” to market watchers of a certain age is that we’ve seen this movie before — but under a different name. During the dot-com bubble of the late 1990s and early 2000s, such deals were referred to as “round-tripping.” One company invested in another, which turned around and used those funds to buy products from the first company. The money made a round trip, puffing up performance without creating profits.
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